1Q14 MACRO THEMES MACRO TEAM. Updated for March 19, 2014

Transcription

1 1Q14 MACRO THEMES MACRO TEAM Updated for March 19, 2014

2 LEGAL DISCLAIMER Hedgeye Risk Management is a registered investment advisor, registered with the State of Connecticut. Hedgeye Risk Management is not a broker dealer and does not make investment recommendations. This research does not constitute an offer to sell, or a solicitation of an offer to buy any security. This research is presented without regard to individual investment preferences or risk parameters; it is general information and does not constitute specific investment advice. This presentation is based on information from sources believed to be reliable. Hedgeye Risk Management is not responsible for errors, inaccuracies or omissions of information. The opinions and conclusions contained in this report are those of Hedgeye Risk Management, and are intended solely for the use of Hedgeye Risk Management s clients and subscribers. In reaching these opinions and conclusions, Hedgeye Risk Management and its employees have relied upon research conducted by Hedgeye Risk Management s employees, which is based upon sources considered credible and reliable within the industry. Hedgeye Risk Management is not responsible for the validity or authenticity of the information upon which it has relied. TERMS OF USE This report is intended solely for the use of its recipient. Re-distribution or republication of this report and its contents are prohibited. For more detail please refer to the appropriate sections of the Hedgeye Services Agreement and the Terms of Use at HEDGEYE 2

3 PROCESS SLIDE #1 OLD FORMAT = $800/SQUARE FT NEW FORMAT = $1,300 SQ FT DIFFERENTIATED FROM THE HERD Macroeconomics and Global Macro Risk Management are two very different fields. We specialize in the latter. WE FOCUS ON THE SLOPES Everything that matters in Global Macro occurs on the margin. HEDGEYE 3

4 PROCESS SLIDE #2 OLD FORMAT = $800/SQUARE FT NEW FORMAT = $1,300 SQ FT OUR FUNDAMENTAL PROCESS If you get the slopes of both growth and inflation right, you ll tend to get a lot of other things right particularly in your P&L. HISTORY MATTERS Analyzing intermediate-term trends within the context of long-term economic and political cycles helps us consistently front-run major asset class turns. HEDGEYE 4

5 PROCESS SLIDE #3 HEDGEYE QUANTITATIVE SETUP: US EQUITIES 1,900 S&P 500 TREND = 1813 TAIL = ,850 1,800 1,750 1,700 1,650 1,600 1,550 1,500 Data Source: Bloomberg ALL BACKSTOPPED BY A PROVEN QUANTITATIVE OVERLAY Multi-factor: Price, Volume and Volatility Multi-duration: TRADE (3 weeks or less), TREND (3 months or more) and TAIL (3 years or less) HEDGEYE 5

6 #INFLATIONACCELERATING

7 ARE COMMODITIES BASING? HEDGEYE QUANTITATIVE SETUP: COMMODITY COMPLEX 375 CRB INDEX TREND = 288 TAIL = Data Source: Bloomberg HEDGEYE 7

8 COMMODITY BASE EFFECT TAILWIND GLOBALLY, CPI READINGS SHOULD COME IN AT LEAST +100 BASIS POINTS HIGHER OVER THE INTERMEDIATE TERM 50% Thomson/Reuters CRB Commodities Index, Monthly Average YoY Compounded at +3% per Month From Here Compounded at +1% per Month From Here Median YoY CPI Reading of US, Eurozone and China (rhs) 6% 40% 5% 30% 20% 4% 10% 3% 0% 2% -10% -20% -30% -40% -50% It s worth noting that 0% YoY for the CRB Index corresponds perfectly with +2% for our CPI sample and +2% is a common goal for Price Stability among central banks. 1% 0% -1% -2% Data Source: Bloomberg. Forecasts for the CRB Index assume no change to current prices unless otherwise noted. HEDGEYE 8

9 1.5x 1.0x 0.5x 0.0x -0.5x -1.0x -1.5x PLUS, COMPS GET EASIER GLOBALLY 3.1% 0.1x 2.8% 2.8% -0.5x Z-SCORE (TRAILING 3Y) OF SELECTED COMPARATIVE BASE (2Y COMP) FOR THE RESPECTIVE CPI REPORTING PERIOD -0.5x 2.4% -1.4x 2.1% 1.7% 1.4% 2.2% -0.7x WORLD 2Y COMP (rhs) 3.2% 1.1x 3.2% 1.0x 3.2% 3.2% 3.1% 3.1% 1.0x 0.8x 0.9x 2.8% 0.1x 0.6x 3.1% 0.6x 2.9% 0.2x 2.6% 2.6% -0.4x -1.0x 2.5% 4% 3% 3% 2% 2% 1% -2.0x -1.7x -1.9x -1.8x Recall that this period was the postcrisis peak in reported inflation globally. -1.7x 1% -2.5x 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 0% HEDGEYE 9

10 THE ACCELERATION HAS COMMENCED HEDGEYE 10

11 CRUDE OIL IS A WILD CARD HEDGEYE QUANTITATIVE SETUP: CRUDE OIL 113 BRENT CRUDE OIL ($/bbl.) TREND = TAIL = Data Source: Bloomberg HEDGEYE 11

12 THE DOLLAR IS AMERICA'S PROBLEM HEDGEYE QUANTITATIVE SETUP: US DOLLAR INDEX 85 US DOLLAR INDEX TREND = TAIL = Data Source: Bloomberg HEDGEYE 12

13 $USD DRIVES ENERGY/FOOD PRICES U.S. DOLLAR VS. FOOD & ENERGY INFLATION 10Y, MONTHLY Down Dollar almost always results in commodity inflation 20% 15% Food & Energy Inflation, YoY % INFLATION UP INFLATION DOWN -20% -15% -10% -5% 10% 5% 0% -5% -10% -15% 0% y = x x R² = % 10% 15% 20% 25% DOLLAR DOWN DXY (U.S. Dollar), YoY % DOLLAR UP HEDGEYE 13

14 & HEADLINE CPI TRACKS NON-CORE Headline CPI, Sequential Change in YoY % -15% HEADLINE CPI TRACKS THE SLOPE OF FOOD & ENERGY INFLATION 10Y, MONTHLY -10% -5% 3% 2% 1% 0% -1% -2% -3% 0% y = 0.227x + 5E-05 R² = Food & Energy Inflation, Sequential Change in YoY % 5% 10% HEDGEYE 14

15 SEASONALITY IN EXPECTATIONS SEASONALITY HAS DRIVEN INFLATION EXPECTATIONS IN RECENT YEARS 5Y Breakeven (LH Axis) CPI, YoY % (RH Axis)? 4.50% 4.00% 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% HEDGEYE 15

16 INFLATIONARY PRESSURES BUILDING 20.0% CPI COMPS EASE WHILE CAPACITY UTILIZATION, SERVICES INFLATION, WAGE AND CREDIT GROWTH ARE BEGINNING TO BREAKOUT Household Debt, YoY % Private Sector Salaries & Wages, 2Y Ave Capacity Utilization, 2Y Ave (RH Axis) CPI, 2Y Ave CPI: Services less Energy, 2Y Ave % % % % % 65 HEDGEYE 16

17 NOT JUST A U.S. PROBLEM 50% 40% 30% 20% 10% 0% -10% -20% -30% -40% -50% -60% Jan-04 Apr-04 Jul-04 Oct-04 Jan-05 Apr-05 THE DOLLAR DRIVES COMMODITY INFLATION GLOBALLY NEGATIVE FOR COUNTRIES WHOSE CPI BASKET IS OVERWEIGHT COMMODITIES Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 CRB Index, YoY % DXY, YoY % Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 HEDGEYE 17

18 OVERWEIGHT TECH, ENERGY AND UTES AVERAGE PERFORMANCE OF SELECTED INDICES ACCORDING TO HEDGEYE MACRO GIP QUADRANT 7.0% Quad #2: Growth Accelerates as Inflation Accelerates Quad #3: Growth Slows as Inflation Accelerates Average 6.5% 6.0% 5.0% 4.5% 4.0% 3.0% 2.0% 1.0% 0.0% 1.4% 1.2% 1.0% 2.9% 1.7% 1.7% 1.1% 0.5% 0.6% 2.2% 3.6% 2.9% 1.1% 0.6% 0.2% 3.7% 3.1% 2.3% 2.0% 1.0% 0.9% 2.4% 0.8% 0.5% 0.1% 3.1% 0.7% -1.0% -2.0% -1.7% -3.0% S&P 500 S&P 500 Consumer Discretionary Index S&P 500 Consumer Staples Index S&P 500 Energy Index S&P 500 Financials Index S&P 500 Health Care Index S&P 500 Industrials Index S&P 500 Information Technology Index S&P 500 Materials Index S&P 500 Utilities Index HEDGEYE 18

19 CAN GROWTH WORK WITHOUT #RATESRISING? INTERMEDIATE-TERM PERFORMANCE OF SELECT STYLE FACTORS (TOP AND BOTTOM DECILES OF THE S&P 500 INDEX) HIGH Long-term EPS Growth HIGH NTM Sales Growth US Treasury 10Y Yield (%) Data Source: Bloomberg HEDGEYE 19

20 SPREADS CAN STILL COMPRESS 6.00 CORPORATE SPREADS STILL HAVE SOME ROOM TO TIGHTEN IG SPREAD (Corp BBB over 10Y Treasury Yield) Current LOW HEDGEYE 20

21 #GROWTHDIVERGENCES

22 ARE THE US AND JAPAN PEAKING? REAL GDP (YOY % CHANGE) 10.0 t₀-3q t₀-2q t₀-1q Latest Print (2.0) (1.2) (0.6) (1.6) (4.0) China (4Q13) Eurozone (4Q13) Germany (4Q13) Japan (4Q13) UK (4Q13) USA (4Q13) Data Source: Bloomberg HEDGEYE 22

23 1.5x EASY COMPS VS. HARD COMPS Z-SCORE (TRAILING 3Y) OF SELECTED COMPARATIVE BASE (2Y COMP) FOR THE RESPECTIVE GDP REPORTING PERIOD 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 1.2x 1.0x 0.8x 1.0x 0.7x 0.9x 0.9x 0.9x 0.7x 0.5x 0.4x 0.4x 0.1x 0.2x 0.3x 0.5x 0.5x 0.5x 0.4x 0.4x 0.4x 0.3x 0.3x 0.2x 0.0x -0.5x -0.4x -0.2x -0.5x -0.6x -1.0x -1.5x -0.9x -1.2x -1.2x -1.4x -1.5x -1.5x -1.0x -1.1x -0.9x -0.9x -2.0x China Eurozone Germany Japan United Kingdom United States Data Source: Bloomberg HEDGEYE 23

24 JAPAN IN POLE POSITION INDUSTRIAL PRODUCTION (YOY % CHANGE) 12.0 Trailing 12M Average Trailing 6M Average Trailing 3M Average Latest Print (0.3) (2.0) China (12/2013) Eurozone (1/2014) Germany (1/2014) Japan (1/2014) UK (1/2014) USA (2/2014) Data Source: Bloomberg HEDGEYE 24

25 STRONG POUND = STRONG UK CONSUMER RETAIL SALES (YOY % CHANGE) Trailing 12M Average Trailing 6M Average Trailing 3M Average Latest Print (0.6) (2.0) China (12/2013) Eurozone (1/2014) Germany (1/2014) Japan (1/2014) UK (1/2014) USA (2/2014) Data Source: Bloomberg HEDGEYE 25

26 CHINA SLOWING WHERE IT MATTERS MANUFACTURING PMI Trailing 12M Average Trailing 6M Average Trailing 3M Average Latest Print China (2/2014) Eurozone (2/2014) Germany (2/2014) Japan (2/2014) UK (2/2014) USA (2/2014) Data Source: Bloomberg HEDGEYE 26

27 #EUROBULLS NON-MANUFACTURING PMI Trailing 12M Average Trailing 6M Average Trailing 3M Average Latest Print China (2/2014) Eurozone (2/2014) Germany (2/2014) Japan (N/A) UK (2/2014) USA (2/2014) Data Source: Bloomberg HEDGEYE 27

28 GERMAN CONFIDENCE CLIMBING BENCHMARK CONSUMER CONFIDENCE INDEX Trailing 12M Average Trailing 6M Average Trailing 3M Average Latest Print (10.0) (30.0) China (NBS; 1/2014) Data Source: Bloomberg (13.7) (12.7) (16.8) Eurozone (European Commission; 2/2014) (10.0) -9.0 (7.0) (15.0) Germany (GFK; 2/2014) Japan (ESRI; 2/2014) UK (GFK; 2/2014) USA (Conference Board; 2/2014) HEDGEYE 28

29 WILL THE EUROZONE FOLLOW GERMANY'S LEAD? BENCHMARK BUSINESS CONFIDENCE INDEX Trailing 12M Average Trailing 6M Average Trailing 3M Average Latest Print (15.0) (35.0) (40.2) (55.0) (54.2) (75.0) (65.2) China (NBS; 12/2013) Eurozone (ZEW; 2/2014) Germany (IFO; 1/2014) Japan (Tankan; 12/2013) UK (Lloyds Bank; 1/2014) USA (NFIB; 1/2014) Data Source: Bloomberg HEDGEYE 29

30 US: HEADING TOWARDS QUAD #3 HEDGEYE 30

31 TRENDS ARE NEGATIVE; WILL THEY INFLECT? BLAME THE WEATHER? HEDGEYE 31

32 JAPAN: RECOVERY LOSING STEAM? HEDGEYE 32

33 CHINA: #GROWTHSTABILIZING? HEDGEYE 33

34 EUROZONE: #GROWTHACCELERATING HEDGEYE 34

35 GERMANY: #GROWTHACCELERATING HEDGEYE 35

36 UK: #GROWTHACCELERATING HEDGEYE 36

37 #FLOWSHOW

38 3 TO 1 DEBT TO EQUITY HEDGEYE 38

39 BOND ALLOCATIONS TO MEAN REVERT LOWER 80% 70% 60% 50% 40% 30% 20% 10% 0% Ratio of Outstanding U.S. Bonds v. Outstanding U.S. Stocks In the year 1999 the ratio was 50/50% Now the ratio is 67/33% bonds to stocks U.S. Stocks Market Cap/Market Cap of Stocks & Bonds U.S. Bonds Market Cap/Market Cap of Stocks & Bonds DATA SOURCE: SIFMA; WILSHIRE 5000 HEDGEYE 39

40 FLOWS CHASE PERFORMANCE 50% 1 YR Performance 2 YR Performance 3 YR Performance 45% 43% 40% 35% 36% 30% 28% 25% 20% 20% 22% 15% 15% 10% 8% 9% 5% 0% S&P500 2% 0% 5% Bloomberg Global DM Sovereign Debt Bloomberg Global IG Corporate Index Index 4% Bloomberg Global HY Corporate Index HEDGEYE 40

41 BONDS: 1ST NEG. RETURN IN 14 YEARS HEDGEYE 41

42 = RECORD NOMINAL BOND FUND OUTFLOWS SOURCE: HEDGEYE FINANCIALS TEAM HEDGEYE 42

43 BUT THIS IS STILL THE SMALLEST OUTFLOW IN HISTORY ON A % BASIS 16.0% 14.0% Historical Fixed Income Outflows on Beginning Bond Fund AUM 14.0% 12.0% 10.0% 8.0% 6.0% 2013 saw a record net outflow from bond funds in nominal terms ($86B), yet as a percentage of starting AUM, 2013 s outflow was less than half the median outflow episode over the past 20Y! 5.0% 5.0% 4.0% 2.0% 2.3% 0.0% HEDGEYE 43

44 REVIEWING THE 1994 TURN: #CRITICAL HEDGEYE 44

45 TAPER = #RATESRISING HEDGEYE 45

46 #ASYMMETRY: THE QUEEN MARY CAN TURN! 16% U.S. GOVT 10 YR Bond Yield TAIL SUPPORT = 2.56% 50 YR Avg. 14% 12% 10% 8% 6% 4% 2% 0% HEDGEYE 46

47 DO YOU KNOW WHAT BOND OUTFLOWS LOOK LIKE? $3.00 $2.50 $2.00 $1.50 $1.00 $0.50 $- $(0.50) $(1.00) $(1.50) $(2.00) Net Inflow into Bonds versus Citi Big Bond Index Performance 16% 14% 12% 10% 8% 6% 4% 2% 0% -2% -4% 3 month Mov. Avg Bond flow over most recent month's beginning assets Y-o-Y total return on Citi Big Bond Index HEDGEYE 47

48 HOW ABOUT EQUITY INFLOWS? $50 $40 $30 $20 $10 $- $(10) $(20) $(30) $(40) Net Inflow into Stocks versus MSCI Global Stock Index Performance 80% 60% 40% 20% 0% -20% -40% -60% 6 month Mov. Avg of Global Equity Flow $BB Y-o-Y total return on MSCI Index HEDGEYE 48

49 INVESTMENT CONCLUSIONS LONGS OLD FORMAT = $800/SQUARE FT Bonds (BND) Long-term Treasuries (TLT) Gold (GLD) Commodities (DBC) Utilities (XLU) SHORTS NEW FORMAT = $1,300 SQ FT Kinder Morgan (KMI) Nationstar Mortgage Holdings (NSM) Potbelly (PBPB) US Consumer Discretionary (XLY) US Consumer Staples (XLP) HEDGEYE 49

50 FOR MORE INFORMATION CONTACT: